The Tax Cuts and Jobs Act is the most sweeping update to the U.S. tax code in more than 30 years. The reforms will simplify taxpaying for many individual Americans, lower taxes on individuals and businesses, and update the business tax code so that American corporations and the people they employ can be globally competitive again.
The Tax Cuts and Jobs Act bill was passed by both the House and the Senate and signed into law by President Trump. The Tax Cuts and Jobs Act has the potential to unleash higher wages, more jobs, and untold opportunity through a larger and more dynamic economy. The bill’s pro-growth components include a deep reduction in the corporate tax rate, a scaled-back state and local tax deduction, full expensing, and lower individual tax rates. The bill also repeals Obamacare’s individual mandate, expands college savings accounts, and increases some non–growth-enhancing tax credits and deductions.
Will the Tax Reform laws affect my 2017 tax return that I file in 2018?
- The new tax law will not impact your 2017 taxes, which many people will start filing returns for beginning in January 2018. These new changes will take effect when you file taxes beginning January 2019. Most provisions affecting individuals and businesses, such as new tax brackets, begin on January 1, 2018.
Are there any Earned Income Tax Credit or the Additional Child Tax Credit Delays?
- Taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit may experience a refund hold. According to the Protecting Americans from Tax Hikes (PATH) Act, the IRS cannot issue these refunds before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards starting Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return.Where’s My Refund? on IRS.gov and the IRS2Go mobile app will be updated Feb. 17 for the vast majority of early filers who claimed the Earned Income Tax Credit or the Additional Child Tax Credit. Before Feb. 17, some taxpayers may see a projected date or a message that the IRS is processing their return. Taxpayers will not see a refund date on Where’s My Refund? or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund. Where’s My Refund? is only updated once daily, usually overnight, so checking it more often will not produce new or different results.
Will I be getting $2000 dollars extra on my tax refund when I file this tax season because of the new Tax Reform Laws?
- No, When we file taxes starting in January 2018, we will actually be filing 2017 tax bills, so nothing will change. As soon as February, businesses will start deducting less from employees’ paychecks, and so there you will see a benefit, you will have higher take-home income when your employer is sending less of your money to uncle sam to pay taxes. Then, in 2019 when people are filing for 2018, which is this first year when tax reform will be going in, then that’s when they’ll actually see the simplification and possibly an increase in your tax refund.
If I don’t have health insurance, will I still be penalized?
- The penalty for not having health insurance remains in place for the 2017 and 2018 tax years. The penalty has been repealed beginning January 1, 2019.
Tax Cuts and Jobs Act
Tax Brackets. The number of tax brackets remains at seven; however, the tax rates and income covered have changed.
For individuals, the following tax rates apply:
- 10% up to $9,525
- 12% up to $38,700
- 22% up to $82,500
- 24% up to $157,500
- 32% up to $200,000
- 35% up to $500,000
- 37% over $500,000
For married couples filing jointly, the following rates apply:
- 10% up to $19,050
- 12% up to $77,400
- 22% up to $165,000
- 24% up to $315,000
- 32% up to $400,000
- 35% up to $600,000
- 37% over $600,000
Standard Deduction. The standard deduction increases to from $6,350 (2017) to $12,000 for individuals, from $9,300 (2017) to $18,000 for heads of household and from $12,700 (2017) to $24,000 for married couples.
Personal Exemption. The deduction for personal exemptions is repealed through 2025.
Child Tax Credit. The child tax credit, which helps parents offset the cost of raising children, will double from $1,000 per child to $2,000. The bill also makes up to $1,400 of the credit refundable. This means you can claim that portion of the credit even if your income is too low for you to owe tax. This is a credit, so it’s particularly valuable because it directly reduces your tax bill — not just your taxable income. Taxpayers don’t have to itemize to receive it. The credit will begin to phase out once a household’s adjusted gross income hits $200,000 for individuals or $400,000 for couples. An additional $500 credit is provided for each non-child dependent. Also, Social Security numbers for children are required before claiming the enhanced credit.
Alternative Minimum Tax. The AMT remains but exemption amount increase to $70,300 for individuals and $109,400 for married filing jointly, affecting fewer taxpayers.
Capital Gains and Dividends. The maximum tax rate remains at 23.8% (20% plus the 3.8% Medicare tax for taxpayers with income above $200,000 or $250,000 married filing jointly). The 20% capital gains income threshold increases to $425,800 for other individuals ($479,000 for married taxpayers filing jointly).
Estate Tax. The exemption (currently $5.5 million) immediately doubles to $11.2 million in 2018 and remains at this level for the next six years, after which time the estate tax is eliminated completely (the tax year 2026 and beyond).
Education-Related Tax Credits and Deductions. 529 Savings Plans are expanded to allow some funds (up to $10,000 for certain expenses) to be used for K-12 education. Rollovers to Achieving a Better Life Experience (ABLE) Sec. 529A accounts will be allowed as well. The student loan interest deduction remains.
Mortgage Interest Deduction. Remains but with a few changes such as allowing interest deduction for up to $750,000 (currently $1 million) in mortgage principal on new homes. Existing mortgages are grandfathered in. Homes entered into a contract before December 15, 2017, and closed on by April 1, 2018, are able to use the prior limit of $1 million.
Home-equity loans. The home-equity loan interest deduction is repealed through 2025.
State and Local Income Tax Deduction. Preserved. The deduction allowed for up to $10,000 a year in state and local income or property taxes.
Note:Taxpayers who prepay 2018 state income taxes, a common tax planning strategy, cannot take the prepaid 2018 amount as a deduction on their 2017 tax returns.
Charitable Contributions. Deductions for charitable donations remain; however, for charitable contributions of cash to public charities the percentage of income limit increases to 60%.
Medical Expense Deductions. The Medical expense deduction (currently 10% of AGI) is temporarily lowered to 7.5% of income for tax years 2017 and 2018.
Miscellaneous Deductions. Many are repealed through 2025 including those relating to tax preparation, alimony payments (after December 31, 2018), and moving expenses with the exception of the moving expense reimbursement for members of the Armed Forces on active duty who move because of a military order.
Adoption Tax Credit. Remains.
Electric Vehicles. The $7,500 tax credit (Sec. 30D) for the purchase of electric vehicles remains.
Individual Healthcare Mandate. The penalty is eliminated for tax years starting in 2018.
Corporate Tax Rate. Starting January 1, 2018, the corporate tax rate is reduced to a flat rate of 21% (down from 35%). The corporate AMT is repealed.
Territorial Taxation. Companies with offshore earnings, currently taxed at a 35% rate, would transition to a territorial tax system. Under the tax reform bill income derived from offshore earnings, if repatriated, would be subject to an effective tax rate of 15.5% for earnings held in liquid assets (i.e. cash) and 8% for illiquid (other) assets.
Business Interest. Small businesses (under $25 million) retain the ability to write off interest on loans subject to limitations.
Business Expensing. Businesses would be allowed to immediately write off the full cost of new equipment at 100% through the tax year 2022, after which it would be phased down over a four-year period.
Business Entertainment Expenses Deduction. The deduction for business entertainment expenses is eliminated.
Pass-through Entities. The tax rate on pass-through business entities is reduced to a maximum of 20% for tax years starting January 1, 2018, and ending on December 31, 2025. Furthermore, a 9% tax rate (vs. the 12% tax rate currently in place) now applies for the first $75,000 ($37,500 for single filers and $56,250 for heads of household) in pass-through business income of an active owner or shareholder earning less than $150,000. The threshold amount is $75,000 for single filers and $112,500 for heads of household. This 9% rate applies to all businesses (subject to the $75,000 income ceiling) and is phased in at 11% for 2018 and 2019, 10% for 2020 and 2021 and 9% for the tax year 2022 and beyond.
Low-income Housing Tax Credit. Remains.
Research & Development Tax Credit. Remains.
Work Opportunity Tax Credit. Remains.
Endowment Assets. A 1.4% excise tax is imposed on investment income derived from endowment funds at private colleges and universities. An exclusion is provided for an institution with less than 500 full-time equivalent students whose endowment (fair market value) is less than $500,000 per student.
If you have any questions feel free to ask them below. We have been following the new tax reform laws closely. And as soon as new information is released we will be posting it here!